Bankruptcy Used as a Tool Against Slumlords

In Houston, TX, the city's crackdown on slumlords is making dramatic headlines as a new and unusual tactic is being employed in the fight against substandard housing.

Officials hope to use a fairly obscure Texas law and federal bankruptcy proceedings to effectively remove more negligent slumlords from control of some of Houston's most poorly kept apartment complexes.

This new tactic may allow residents of the rental units that are in such ill repair to avoid being displaced and becoming homeless through city closings of these slums.

The Houston Chronicle reports that city officials hope their plan will also give them more leverage against negligent property owners.

Houston Mayor Bill White says that the city is improving its methods of identifying and remedying substandard apartments and rental units.

White recently called in a favor from an old friend who happens to be a retired federal bankruptcy judge.

With the help of his friend and city lawyers, White was able to persuade a judge in less than 24 hours to give control of La Casita Apartments over to a new management company.

White said that it was essential to act swiftly to use the legal remedies of filing bankruptcy to protect the property and to hold the owner accountable.

The new tactic has come with a learning curve for the city. In September, La Casita Apartments failed an inspection by the Houston Housing Authority. The residents of these apartments who were living there on federal assistance had to be evicted by housing officials.

However, there was a breakdown of communication among various city departments that are involved in the fight to improve substandard housing conditions. The news of the failed inspection and the evictions was not relayed to the proper departments.

Doug Anders, a Houston police officer, has been assigned the task of improving collaboration and communication between departments during the housing inspection process.

Anders says that he is devising a plan to standardize inspections. He expects to launch a logical system that will allow city departments to use a single database to enter information about apartment buildings.

Slumlords Forced into Filing Bankruptcy

La Casita Apartments began to experience dire financial problems earlier this year when residents who were displaced due to hurricanes began to move out after their share of government assistance was used up.

Rising utility bills increased the cash crunch for the complex, and then Hurricane Ike came through and caused severe damage to the structures.

Rumors of the complex closing circulated among residents after the failed inspection and evictions in September, but the tenants say that the management assured them that the complex would not close.

Tensions heightened at La Casita Apartments when some residents received notices that they would have to move because their water service would be discontinued due to non-payment.

Apartment managers collected payment for the bills and were responsible for paying them, but had failed to pay hundreds of thousands of dollars to utility companies.

The situation then escalated into a meltdown on November 5 when tenants saw the rental office packed up and loaded into a moving truck, just days after they had paid their rent for the month.

Residents physically blocked the truck from leaving and a manager resorted to calling police. No arrests have been made, but the Houston Police Department has opened an investigation into why rent was collected when managers knew that the apartment complex was closing.

Within several minutes of being made aware of the situation at La Casita Apartments, White made a call to former bankruptcy judge William Greendyke for help to force the owners of the apartment complex into bankruptcy.

With Greendyke's assistance, city lawyers convinced a judge and the Dallas bank that held a lien on the property to turn over control of the apartments to a bankruptcy trustee.

In involuntary bankruptcy cases, the property owners generally have up to 20 days to respond to the bankruptcy motion. It is unclear at this time what the next move of the owners of La Casita Apartments will be.

This case could set a precedent for how Houston can use a little-used state law in a similar way to how federal bankruptcy laws were utilized against the owners of La Casita Apartments.

Under Texas law, municipalities can ask district court judges to appoint a "receivership" over a property if there is proof that the property has fallen into such disrepair that there is an imminent risk of injury or a history of property neglect.

Use of this law could drastically diminish the ability of slumlords to continue operations.